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Copyright © 2011 Pearson Education, Inc.
Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 2 The U.S. and Global Economies
2.1 What, How, and For Whom?
1) Items that are purchased by individuals for their own enjoyment are called
A) consumption goods and services.
B) capital goods.
C) government goods and services.
D) exports of goods and services.
E) private goods.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
2) Items bought by individuals to provide personal enjoyment are termed
A) consumption goods.
B) personal goods.
C) consumption or investment goods.
D) standard goods.
E) pleasure goods.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
3) What would be an example of consumption good?
A) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
B) The local driver’s license office purchases a new digital camera and printer.
C) Rhianna gets a haircut.
D) Jake buys an iPhone.
E) Donald Trump purchases furniture for his office.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
2
Copyright © 2011 Pearson Education, Inc.
4) Which of the following is a consumption good or service?
A) a personal computer purchased in order to play games at home
B) a United Airline ticket counter
C) the Endeavor space shuttle
D) a United Parcel Service truck delivering Christmas gifts
E) a satellite dish installed by Cox Cable to download programs that are then distributed through
its cable system
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
5) What would be an example of consumption service?
A) Rhianna gets a haircut.
B) Jake buys an iPhone.
C) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
D) The local driver’s license office purchases a new digital camera and printer.
E) Donald Trump purchases furniture for his office.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
6) The largest share of total production in the United States is
A) consumption goods and services.
B) capital goods.
C) government goods and services.
D) exported goods and services.
E) imported goods and services.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
3
Copyright © 2011 Pearson Education, Inc.
7) Items bought by businesses to help produce other goods and services are called
A) consumption goods and services.
B) capital goods.
C) government goods and services.
D) exports of goods and services.
E) productive goods.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
8) An item that is purchased to increase businesses' productive factors is
A) an export.
B) a government good.
C) a capital good.
D) a consumption good.
E) a productive good.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
9) What would be an example of capital good?
A) Jeanette buys a new dress.
B) The local driver’s license office purchases a new digital camera and printer.
C) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
D) Apple sells computers to Japan.
E) Rhianna gets a haircut.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
4
Copyright © 2011 Pearson Education, Inc.
10) The difference between consumption and capital goods is that
A) only big corporations can afford capital goods.
B) capital goods are used to produce additional goods while consumption goods are not.
C) capital goods are provided by the government.
D) consumption goods can be enjoyed by many people at the same time.
E) it is illegal to export capital goods.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
11) Goods and services bought by the government account for around ________ percent of total
production.
A) 2
B) 8
C) 18
D) 35
E) 67
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
12) What would be an example of government good?
A) Jake buys an iPhone.
B) The local driver’s license office purchases a new digital camera and printer.
C) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
D) Donald Trump purchases furniture for his office.
E) Rhianna gets a haircut.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
5
Copyright © 2011 Pearson Education, Inc.
13) Goods produced in the United States and sold in other countries are called
A) exports.
B) imports.
C) foreign goods.
D) capital goods.
E) capital account goods.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
14) An export good is a good produced
A) in the United States and sold to foreigners living in the United States.
B) by foreigners in the United States and purchased by U.S. households.
C) in another country and purchased by U.S. residents.
D) in the United States and sold in other countries.
E) in another country and purchased by foreigners not residing in the United States.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
15) Computers and insurance coverage produced in the United States and sold to people in other
nations are categorized as
A) U.S. consumption goods and services.
B) foreign capital goods.
C) U.S. government goods and services.
D) U.S. exports of goods and services.
E) U.S. imports of goods and services.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
6
Copyright © 2011 Pearson Education, Inc.
16) The Colorado Ski Shop sold 60 ski jackets to a Belgium company's headquarters located in
Paris, France. The ski jackets are a
A) U.S. export.
B) capital good.
C) government good.
D) U.S. consumption service.
E) U.S. import.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
17) Which of the following is not considered as one of the factors of production?
A) Land.
B) Labor.
C) Capital.
D) Technology.
E) Entrepreneurship.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
18) Which of the following correctly lists the categories of factors of production?
A) land, labor, capital, and entrepreneurship
B) land, buildings, capital, and entrepreneurship
C) labor, machines, buildings, capital, and entrepreneurship
D) forests, fish, buildings, capital, and entrepreneurship
E) labor, money, stocks, and bonds
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
7
Copyright © 2011 Pearson Education, Inc.
19) Goods and services are produced by using four factors of production:
A) land, labor, capital, and entrepreneurship.
B) land, labor, money, and equipment.
C) natural resources, human resources, financial assets, and entrepreneurial resources.
D) labor, human capital, physical capital, and financial capital.
E) land, labor, capital, and money.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CO
AACSB: Reflective thinking
20) Factors of production are the
A) goods that are bought by individuals and used to provide personal enjoyment.
B) goods that are bought by businesses to produce productive resources.
C) productive resources used to produce goods and services.
D) productive resources used by government to increase the productivity of consumption.
E) goods and services produced by the economy.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
21) The productive resource that includes all the "gifts of nature" is called
A) land.
B) labor.
C) capital.
D) entrepreneurship.
E) land if undeveloped and capital if developed.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
8
Copyright © 2011 Pearson Education, Inc.
22) Economists classify energy and water as part of which factor of production?
A) land
B) labor
C) capital
D) entrepreneurship
E) land if undeveloped and capital if developed
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
23) As a factor of production, oil reserves are counted as
A) land.
B) labor.
C) capital.
D) entrepreneurship.
E) financial capital.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
24) Over time, the percentage of total employment in services has ________ and in agriculture,
employment has ________.
A) increased; increased.
B) decreased; increased.
C) decreased; increased.
D) stayed about the same; increased.
E) increased; decreased.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
9
Copyright © 2011 Pearson Education, Inc.
25) The concept of human capital describes
A) human skills, that is, the quality of labor.
B) human population, that is, the quantity of labor.
C) the number of machines per employed worker.
D) the number of workers per operating machine.
E) the number of machines (capital) that have been produced by people (humans).
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
26) Which factor of production does human capital enhance?
i. land
ii. labor
iii. capital
A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) i, ii, and iii.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
27) Human capital can be increased through
A) investment in new technology.
B) education, on-the-job training, and work experience.
C) investment in new machinery.
D) decreases in population.
E) increasing the nation's production of consumption goods.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
10
Copyright © 2011 Pearson Education, Inc.
28) The United States possesses a large amount of human capital. As a result of this fact, in the
United States there is a
A) large amount of machinery and equipment.
B) large number of people and a great deal of land.
C) highly skilled and educated labor force.
D) large number of kind and generous humans.
E) large amount of machinery (capital) that is run by people (humans).
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
29) Jan is attending college and studying to be an investment broker. To improve her chances of
employment following college, she has interned at a top brokerage firm during the last two
summers. Jan's internship has increased her
A) natural labor.
B) human capital.
C) consumption services.
D) natural resources.
E) entrepreneurship capital.
Skill: Level 4: Applying models
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
30) Capital, as a factor of production, refers to
A) money, stocks, and bonds.
B) the production technology used by firms.
C) the physical goods used to produce other goods and services.
D) the production factors imported from abroad.
E) stocks, and bonds but not money.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
11
Copyright © 2011 Pearson Education, Inc.
31) The total value of capital in the United States is around
A) $47 trillion.
B) $10 trillion.
C) $79 trillion.
D) $100 trillion.
E) $145 trillion.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
32) Capital is best defined as
A) produced goods used by businesses.
B) financial capital.
C) investment.
D) money.
E) stocks and/or bonds.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
33) Capital is a factor of production. Which of the following is an example of capital?
i. $1,000 in money
ii. 100 shares of Microsoft stock
iii. $10,000 in bonds issued by General Motors
iv. A drill press in your local machine shop
A) i and ii.
B) ii only.
C) iii only.
D) iv only.
E) ii and iii.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
12
Copyright © 2011 Pearson Education, Inc.
34) Capital is a factor of production. An example of capital as a factor of production is
A) money.
B) stocks.
C) bonds.
D) machines.
E) education.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
35) One of the productive resources is capital. Capital includes
A) money borrowed from a bank.
B) a company's stocks and bonds.
C) tools, buildings, and machine tools.
D) toys, t-shirts, CD players, and pencils.
E) money in a savings account at a bank.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
36) Which of the following is NOT considered capital?
A) An assembly line at a General Motors plant.
B) A computer used by your instructor for presentations in class.
C) Stocks and bonds that are sold by Pepsico.
D) The furniture in the President’s office.
E) A nail gun used for building houses.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
13
Copyright © 2011 Pearson Education, Inc.
37) The owners of the resource ________ are paid ________ .
A) land; wages
B) labor; profit
C) capital; rent
D) capital; interest
E) entrepreneurship; wages
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
38) Entrepreneurship, as a factor of production, refers to
A) the technology used by firms.
B) the human capital accumulated by workers.
C) the value of the firm's stock.
D) the human resource that organizes labor, land, and capital.
E) the capital the firm uses.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
39) The productive resource that organizes labor, land, and capital is
A) human capital.
B) financial capital.
C) entrepreneurship.
D) government.
E) capital.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
14
Copyright © 2011 Pearson Education, Inc.
40) Payments to the factors of production are
A) rent, mortgage, interest, and bonds.
B) rent, interest, bonds, and profit or loss.
C) rent, wages, interest, and profit or loss.
D) rent, wages, profit or loss, and bonus.
E) land, labor, capital, and entrepreneurship.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
41) ________ paid for the use of land; ________ paid for the services of labor; and ________
paid for the use of capital.
A) Rent is; wages are; interest is
B) Rent is; interest is; wages are
C) Interest is; wages are; profit is
D) Mortgages are; interest is; wages are
E) Rent is; wages are; profit is
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
42) The income paid for the use of land is called
A) rent.
B) wages.
C) interest.
D) profit.
E) land capital.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
15
Copyright © 2011 Pearson Education, Inc.
43) The income paid to labor is called
A) rent.
B) wages.
C) interest.
D) profit.
E) human capital.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
44) Which factor of production is paid "interest"?
A) land
B) labor
C) capital
D) entrepreneurship
E) human capital
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
45) Which factor of production is paid "profit"?
A) land
B) labor
C) capital
D) entrepreneurship
E) human capital
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
16
Copyright © 2011 Pearson Education, Inc.
46) The functional distribution of income measures which of the following?
A) How federal tax revenues are related to the business function that employs taxpayers.
B) The distribution of earnings by the factors of production.
C) The proportion of income generated by the four types of expenditures on goods and services.
D) The distribution of income among households.
E) The distribution of income among nations.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
47) In the United States, the productive factor that, as a group, receives the largest fraction of the
nation's total income was
A) labor.
B) capital.
C) consumption goods and services.
D) entrepreneurship.
E) land.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: CT
AACSB: Reflective thinking
48) According to the functional distribution of income, in the United States
A) capital earns most of the income.
B) labor earns most of the income.
C) land earns most of the income.
D) entrepreneurs earned most of the income.
E) the income earned by capital and labor are approximately equal.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: DMC
AACSB: Reflective thinking
17
Copyright © 2011 Pearson Education, Inc.
49) The data show that more than 60 percent of the total income earned in the United States goes
to
A) labor.
B) land.
C) capital.
D) entrepreneurship.
E) profit.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
50) The majority of the income earned in the United States is paid in
A) rent.
B) wages.
C) interest.
D) profit.
E) dividends.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: KG
AACSB: Reflective thinking
51) The personal distribution of income measures which of the following?
A) How federal tax revenues are related to the type of businesses that employs the taxpayers.
B) The distribution of earnings by the factors of production.
C) Proportion of income generated by the four types of expenditures on goods and services.
D) The distribution of income among households.
E) The distribution of income among nations.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
18
Copyright © 2011 Pearson Education, Inc.
52) In the United States, the poorest 20 percent of households receive roughly ________ percent
of total income.
A) 20
B) 10
C) 15
D) 3
E) 0.5
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
53) The personal distribution of income in the United States shows that
A) income is equally distributed.
B) the poorest 20 percent of individuals receive approximately 20 percent of total income.
C) the richest 20 percent of individuals receive approximately 50 percent of total income.
D) the poorest 60 percent of individuals receive approximately 50 percent of total income.
E) the richest 20 percent of individuals receive approximately 25 percent of total income.
Skill: Level 3: Using models
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
54) The richest 20 percent of individuals in the United States receive about ________ of the
nation's total income.
A) 20 percent
B) 50 percent
C) 90 percent
D) 10 percent
E) 23 percent
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
19
Copyright © 2011 Pearson Education, Inc.
55) When the total U.S. production of goods and services is divided into consumption goods and
services, capital goods, government goods and services, and export goods and services, the
largest component is
A) consumption goods and services.
B) capital goods.
C) government goods and services.
D) export goods and services.
E) capital goods and government goods and services tie for the largest component.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
56) An example of a capital good is
A) a fiber optic cable TV system.
B) an insurance policy.
C) a hair cut.
D) an iPod.
E) a slice of pizza.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
57) Goods and services produced in the United States and sold in other countries are called
A) consumption goods and services.
B) capital goods.
C) government goods and services.
D) export goods and services.
E) import goods and services.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
20
Copyright © 2011 Pearson Education, Inc.
58) Which of the following correctly lists the categories of factors of production?
A) machines, buildings, land, and money
B) hardware, software, land, and money
C) capital, money, and labor
D) owners, workers, and consumers
E) land, labor, capital, and entrepreneurship
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
59) In economics, the factor of production "land" includes all of the following except ________.
A) energy
B) plastics
C) wild plants
D) animals, birds, and fish
E) oil
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
60) Human capital is
A) solely the innate ability we are born with.
B) the money humans have saved.
C) the knowledge humans accumulate through education and experience.
D) machinery that needs human supervision.
E) any type of machinery.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
21
Copyright © 2011 Pearson Education, Inc.
61) When Ethan continues his education beyond high school he is increasing his
A) capital.
B) wage rate.
C) human capital.
D) quantity of labor.
E) rent.
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
62) ________ is the human resource that organizes labor, land, and capital.
A) Human capital
B) Human skill
C) A gift of nature
D) Entrepreneurship
E) Profit
Skill: Level 2: Using definitions
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
63) Wages are paid to ________ and interest is paid to ________.
A) entrepreneurs; capital
B) labor; capital
C) labor; land
D) entrepreneurs; land
E) labor; entrepreneurs
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
22
Copyright © 2011 Pearson Education, Inc.
64) The income earned by entrepreneurs is
A) interest.
B) wages.
C) profit or loss.
D) rent, wages, and interest.
E) a mixture of rent, wages, interest, and profit.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
65) Dividing the nation's income among the factors of production, the largest percentage is paid
to
A) labor.
B) land.
C) capital.
D) entrepreneurship.
E) labor and capital, with each receiving about 41 percent of the total income.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
66) ________ earned the highest amount of income among the factors of production in the
United States.
A) Labor
B) Capital
C) Land
D) Entrepreneurship
E) Investment
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
23
Copyright © 2011 Pearson Education, Inc.
67) In the United States, the richest 20 percent of households receive about ________ percent of
total income.
A) 4
B) 15
C) 23
D) 50
E) 33
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
68) In the United States, the poorest 20 percent of households receive about ________ percent of
total income.
A) 3
B) 15
C) 23
D) 49
E) 20
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MyEconLab Web Site
AACSB: Reflective thinking
69) The personal distribution of income shows
A) that labor receives the largest percentage of total income.
B) how profit accounts for the largest fraction of total income.
C) that the richest 20 percent of households receive 23 percent of total income.
D) that interest accounts for most of the income of the richest 20 percent of households.
E) that the poorest 20 percent of households receive less than 4 percent of total income.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: STUDY GUIDE
AACSB: Reflective thinking
24
Copyright © 2011 Pearson Education, Inc.
2.2 The Global Economy
1) Compared to the world, the rate of U.S. population growth is
A) slower than in the world as a whole.
B) about the same as in the world as a whole.
C) much faster than in the world as a whole.
D) incomparable because U.S. residents are born with a much greater chance of accumulating a
lot of human capital.
E) incomparable because we do not have accurate world population statistics.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: WM
AACSB: Reflective thinking
2) The U.S. population is roughly ________ percent of the world population.
A) 1
B) 5
C) 10
D) 20
E) 33
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: NAU
AACSB: Reflective thinking
3) Approximately ________ people live in the United States and ________ people live in the
world.
A) 400 million; 8 billion
B) 300 million; 7 billion
C) 200 million; 5 billion
D) 300 million; 6 billion
E) 200 million; 6 billion
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: KG
AACSB: Reflective thinking
25
Copyright © 2011 Pearson Education, Inc.
4) The most people live in ________ economies and the fewest people live in ________
economies.
A) developing; emerging market
B) advanced; emerging market
C) advanced; developing
D) emerging market; developing
E) developing; advanced
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: KG
AACSB: Reflective thinking
5) When describing the IMF broad country classification, the most accurate statement is that
A) the category with the greatest number of countries is the advanced economies.
B) the emerging market economies are countries that were, until the early 1990s, part of the
Soviet Union or its satellites.
C) most of the nations in Western Europe are considered emerging market economies.
D) most of the world's population lives in advanced economies.
E) about 50 percent of the world's population live in the advanced economies and the other 50
percent live in the emerging market and developing economies.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: WM
AACSB: Reflective thinking
6) Which of the following is NOT classified as an advanced economy?
A) South Korea
B) Australia
C) Russia
D) Hong Kong
E) the United Kingdom
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: NAU
AACSB: Reflective thinking
26
Copyright © 2011 Pearson Education, Inc.
7) Canada is classified by the International Monetary Fund as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) a natural-resource based economy.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: TPS
AACSB: Reflective thinking
8) Most countries in the world are classified as
A) advanced.
B) in transition.
C) developing.
D) industrialized.
E) emerging market.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: NAU
AACSB: Reflective thinking
9) Most of the world's population lives in
A) advanced economies.
B) developing economies.
C) transition economies.
D) emerging market economies.
E) island nations.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: AA
AACSB: Reflective thinking
27
Copyright © 2011 Pearson Education, Inc.
10) Which of the following is true?
i. The advanced economies account for more than half of global production.
ii. Almost four out of every five people in the world live in the developing economies.
iii. In the advanced economies, agriculture accounts for a larger part of total production than in
the developing economies.
A) Only i and ii
B) Only ii and iii
C) Only i and iii
D) Only i
E) i, ii, and iii
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
11) Nigeria would be classified by the International Monetary Fund as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) a resource-based economy.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: TPS
AACSB: Reflective thinking
12) Emerging market economies are located primarily in
A) Western Europe.
B) Southeast Asia.
C) Eastern Europe.
D) South America.
E) Northern Africa.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: NAU
AACSB: Reflective thinking
28
Copyright © 2011 Pearson Education, Inc.
13) The percentage of the world's population that lives in the emerging market economies is
A) more than 50 percent.
B) almost 80 percent.
C) about 7 percent.
D) about 25 percent.
E) about 67 percent.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: WM
AACSB: Reflective thinking
14) Poland is classified as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) private economy.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: TPS
AACSB: Reflective thinking
15) The majority of the value of production in the world economy is produced in
A) all of the developing economies taken together.
B) all of Africa and the Middle East taken together.
C) China and other Asian developing economies.
D) all of the advanced economies taken together.
E) all of the emerging market economies taken together.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: KG
AACSB: Reflective thinking
29
Copyright © 2011 Pearson Education, Inc.
16) Which of the following is an example of an effort to decrease human capital differences
between an advanced and a developing economy?
A) Habitat for Humanity builds houses for low income families in the United States.
B) Colorado State University developed efficient and inexpensive cook stoves which are
distributed to poor families in Africa and Asia.
C) Creating Hope International trains women in Afghanistan to become tailors.
D) The Grameen Bank provides small business loans to very poor women in Bangladesh.
E) Intel donates money to a fund that provides safe drinking water in Nepal.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: KG
AACSB: Reflective thinking
17) The charitable organization Creating Hope International trains women in Afghanistan to
become tailors. This effort reduces
A) physical capital differences between advanced and developing economies.
B) entrepreneurship differences between advanced and developing economies.
C) agricultural differences between advanced and developing economies.
D) manufacturing differences between advanced and developing economies.
E) human capital differences between advanced and developing economies.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: KG
AACSB: Reflective thinking
18) Which of the following is an example of an effort to decrease physical capital differences
between an advanced and a developing economy?
A) American troops build roads in Iraq.
B) Through World Vision, women and children in Africa receive education.
C) Peace Corps volunteers teach English around the world.
D) Creating Hope International trains women in Afghanistan to become tailors.
E) Habitat for Humanity builds houses for low income families in the United States.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: KG
AACSB: Reflective thinking
30
Copyright © 2011 Pearson Education, Inc.
19) Of the following, the country with the highest average income per day in the world is
A) Japan.
B) the United States.
C) France.
D) Germany.
E) China.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: WM
AACSB: Reflective thinking
20) The world population is approximately ________ people.
A) 6.8 million
B) 2 trillion
C) 6.8 billion
D) 6.8 trillion
E) 680 million
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
21) The percentage of the world's population that lives in the advanced economies is
A) more than 71 percent.
B) between 51 percent and 70 percent.
C) between 31 percent and 50 percent.
D) between 20 percent and 30 percent.
E) less than 20 percent.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
31
Copyright © 2011 Pearson Education, Inc.
22) Which of following groups of countries are all advanced economies?
A) Australia, Brazil, and the United States
B) Hong Kong, Japan, France, and the United Kingdom
C) Italy, the United States, China, and Russia
D) Singapore, Russia, France, and Chad
E) Mexico, Canada, Germany, and Egypt
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
23) The emerging market economies are
A) the largest grouping including the nations of China and India.
B) in transition from state-owned production to free markets.
C) most of the nations of Western Europe.
D) the nations that are currently agricultural in nature.
E) the nations with the highest standards of living.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
24) As a percentage of total world production, production in the 29 advanced economies is about
________ percent of total world production and in the 118 developing economies is about
________ percent of total world production.
A) 56; 36
B) 23; 62
C) 59; 12
D) 30; 46
E) 19; 73
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
32
Copyright © 2011 Pearson Education, Inc.
25) Compared to the developing economies, the advanced economies have ________ human
capital and ________ physical capital.
A) more; more
B) more; less
C) the same; the same
D) less; more
E) less; less
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
26) In the advanced economies, ________ of the factories use advanced capital equipment and in
the developing economies ________ of the factories use advanced capital equipment
A) virtually all; virtually all
B) some; some
C) virtually all; none
D) some; none of
E) virtually all; some
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
27) Among the United States, Canada, Russia, India, and the United Kingdom, the country with
the highest average income per person is
A) the United States.
B) Russia.
C) India.
D) Canada.
E) the United Kingdom.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: STUDY GUIDE
AACSB: Reflective thinking
33
Copyright © 2011 Pearson Education, Inc.
2.3 The Circular Flows
1) ________ the owners of the factors of production, while ________ what amounts of those
factors to hire.
A) Households are; firms determine
B) Households are; the government determines
C) The government is; firms determine
D) Firms are; households determine
E) Firms are; the government determines
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: DMC
AACSB: Reflective thinking
2) Dan missed class the day the professor covered the circular flow model. Dan asked his friend
Joan to explain markets to him. Joan correctly stated that a market
A) requires a physical location for buyers and sellers to get together.
B) is any arrangement that brings buyers and sellers together.
C) must include a written contract between buyers and sellers.
D) is only a place to purchase groceries.
E) must have many buyers and only one seller, who is willing to sell to all the buyers.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: CT
AACSB: Reflective thinking
3) The decisions of firms and households are
A) coordinated by markets.
B) made independently of one another.
C) controlled by but not totally coordinated by the government.
D) unexplainable by the circular flow model.
E) coordinated by but not totally controlled by the government.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: WM
AACSB: Reflective thinking
34
Copyright © 2011 Pearson Education, Inc.
4) The circular flow model is used to show the
A) flow of renewable natural resources.
B) recycling process of production materials.
C) expansions and contractions of economic activity.
D) flow of expenditures and incomes in the economy.
E) flow of supply and the flow of demand.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: DMC
AACSB: Reflective thinking
5) The circular flow model shows the
A) distribution of income and consumption goods across income levels.
B) combinations of the factors of production needed to produce goods and services.
C) flow of expenditure and incomes that arise from the households', firms', and governments'
decisions.
D) flow of natural resources from firms to the private market to government and back to firms.
E) distribution of income to the different factors of production.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: CT
AACSB: Reflective thinking
6) The circular flow model shows the flow of
A) expenditure and income throughout the economy.
B) only money throughout the economy.
C) only funds in stock and bond markets.
D) only tax payments and government expenditures.
E) goods market and factor markets as they move through the economy.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: NAU
AACSB: Reflective thinking
35
Copyright © 2011 Pearson Education, Inc.
7) In the circular flow model, there are two types of markets: the ________ market and the
________ market.
A) producers; consumers
B) households; firms
C) service; goods
D) goods; factor
E) supply; demand
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: DMC
AACSB: Reflective thinking
8) In the circular flow model, consumption goods are bought and sold in the
A) goods market.
B) financial market.
C) factor markets.
D) government market.
E) monetary flows.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: CT
AACSB: Reflective thinking
9) In the circular flow model, which of the following is on the buying side in the goods market?
i. firms
ii. households
iii. federal, state, and local governments
A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) ii and iii.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: TPS
AACSB: Reflective thinking
36
Copyright © 2011 Pearson Education, Inc.
10) In the circular flow model, which of the following is on the selling side in the goods market?
A) federal, state, and local governments
B) only households
C) exporters
D) only firms
E) both firms and households
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: TPS
AACSB: Reflective thinking
11) The circular flow model shows that goods and services flow from
A) businesses to households.
B) households to business.
C) the factor market to businesses.
D) the goods market to businesses.
E) the factor markets to the goods markets.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: AA
AACSB: Reflective thinking
12) As the circular flow model points out, a choice that households make is how
A) many resources a firm will hire.
B) many goods and services are produced.
C) many goods and services are purchased.
D) much labor is hired.
E) much the government will collect in taxes and how much the government will spend on
transfer payments.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: NAU
AACSB: Reflective thinking
37
Copyright © 2011 Pearson Education, Inc.
13) In the circular flow model, which of the following owns the factors of production?
A) only federal, state, and local governments
B) only households
C) only firms
D) both firms and households
E) firms, households, and all levels of government
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: TPS
AACSB: Reflective thinking
14) In the circular flow model, the factor markets are the markets in which
A) consumption goods and services are bought and sold.
B) government goods and services are provided.
C) land, labor, capital, and entrepreneurship are bought and sold.
D) investment goods and services are bought and sold.
E) governments impose all their taxes.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: CT
AACSB: Reflective thinking
15) As the circular flow model shows, the factors of production flow from
A) firms to households through the factor market.
B) households to firms through the factor market.
C) firms to households through the goods market.
D) households to firms through the goods market.
E) the goods market through firms to the factor markets.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: NAU
AACSB: Reflective thinking
38
Copyright © 2011 Pearson Education, Inc.
16) In the circular flow model, the factors of production flow in the
A) same direction as do the rents, wages, interest, and profits.
B) opposite direction as do the rents, wages, interest, and profits.
C) opposite direction as does the government.
D) same direction as does the goods market.
E) opposite direction as does the goods market.
Skill: Level 4: Applying models
Section: Checkpoint 2.3
Author: DMC
AACSB: Reflective thinking
17) In the goods market, firms ________ and households ________.
A) purchase goods and services; supply goods and services
B) supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and
entrepreneurship services
C) pay rent, wages, interest, and profit:; earn rent, wages, interest, and profit
D) supply goods and services; purchase goods and services
E) hire land, labor, capital, and entrepreneurship services; supply goods and services
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
18) In the factor market, firms ________ and households ________.
A) hire land, labor, capital, and entrepreneurship services; purchase goods and services
B) supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and
entrepreneurship services
C) pay rent, wages, interest, and profit; earn rent, wages, interest, and profit
D) purchase goods and services; supply goods and services
E) supply goods and services; purchase goods and services
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
39
Copyright © 2011 Pearson Education, Inc.
19) In the circular flow model, who hires the factors of production in the factor markets?
A) an agency of the Federal government
B) only households
C) the goods market
D) only firms
E) both firms and households
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: TPS
AACSB: Reflective thinking
20) In the circular flow model, which of the following flows in the opposite direction from the
flow of factors of production?
A) finished goods and services
B) wages, rent, interest, and profit
C) interests payments of Federal, state, and local governments
D) firm's profit incentives
E) the goods market
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: TPS
AACSB: Reflective thinking
21) Terri is enrolled in her first economics course. She is required to give a presentation about
the circular flow. Which of the following statements should she include in her presentation?
A) Households choose the amount of the factors of production to provide the firms.
B) Firms choose the amount of the factors of production to provide households.
C) Households receive wages for the amount of entrepreneurship they provide firms.
D) Firms pay wages for the amount of entrepreneurship they provide households.
E) The flows of goods and services and payments for the goods and services flow in the same
direction.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: CT
AACSB: Reflective thinking
40
Copyright © 2011 Pearson Education, Inc.
22) Aaron locked himself out of his house and had to pay $40 to Brianna, who works for Lucky
Locksmith, to open his door. Based on this transaction in the economy and using concepts from
the circular flow model, which of the following is true?
A) Brianna earned income from supplying her labor services.
B) Aaron earned income from supplying his labor services.
C) Brianna purchased goods and services.
D) Aaron acted as a firm in this transaction.
E) Aaron supplied goods and services.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
23) In the circular flow model,
A) the government is represented as a separate market.
B) the government buys goods and services from firms.
C) goods and services are sold by households and purchased by firms.
D) factor markets are where goods rather than services are bought and sold.
E) the government has no direct interaction with either households or firms.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: SA
AACSB: Reflective thinking
24) In the circular flow model with the government sector, transfers
A) flow in the same direction as do taxes.
B) flow in the opposite direction as do taxes.
C) to households flow in the same direction as do expenditures on goods and services.
D) to firms flow in the same direction as do rent, wages, interest, and profits.
E) flow only through the goods market.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: DMC
AACSB: Reflective thinking
41
Copyright © 2011 Pearson Education, Inc.
25) In the circular flow model with the government sector, taxes
A) flow in the opposite direction as do transfers.
B) flow in the same direction as do transfers.
C) on households flow in the same direction as do the goods and services.
D) on firms flow in the same direction as do factors of production.
E) flow from the goods market to the factor markets.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: DMC
AACSB: Reflective thinking
26) Which of the following is NOT shown explicitly in the circular flow model?
A) the governments' purchases in the goods market
B) the taxes the governments collect from households
C) the governments' interaction with firms
D) the legal system
E) the transfers the governments make to households
Skill: Level 3: Using models
Section: Checkpoint 2.3
Author: CD
AACSB: Reflective thinking
27) Which of the following is a function of the U.S. federal government?
A) providing the legal and social framework for economic activity
B) distributing private goods and services
C) deciding for whom firms should produce goods and services
D) deciding how much to produce of private goods and services
E) determining what wages firms will pay their workers.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: PH
AACSB: Reflective thinking
42
Copyright © 2011 Pearson Education, Inc.
28) Within the U.S. economy, the role of the government
A) includes providing some goods and services.
B) is solely to collect taxes.
C) is quite small and barely effects the private sector.
D) is solely to regulate and punish those who break the law.
E) is, in part, to determine the wages and salaries that all workers are paid.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: WM
AACSB: Reflective thinking
29) Which of the following is NOT a function of the federal government?
A) collecting property taxes
B) making social security and welfare payments
C) making transfers to state and local governments
D) providing public goods and services
E) imposing a personal income tax.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: WM
AACSB: Reflective thinking
30) Of the following, the largest single component of U.S. federal government expenditures is
spent on
A) interest paid on the national debt.
B) Social Security benefits.
C) national defense.
D) purchases of goods and services for purposes other than national defense.
E) transfers to state and local governments.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: PH
AACSB: Reflective thinking
43
Copyright © 2011 Pearson Education, Inc.
31) The largest component of federal government spending is for
A) national defense.
B) Medicare and Medicaid.
C) education.
D) prisons.
E) interest on the national debt.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: JC
AACSB: Reflective thinking
32) Of the following, the federal government obtains most revenue from
A) excise taxes.
B) sales taxes.
C) corporate income taxes.
D) social security taxes.
E) property taxes.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: PH
AACSB: Reflective thinking
33) The two biggest items of the U.S. federal government revenue that together account for over
approximately 80 percent of total federal government revenue are
A) personal income taxes and Social Security taxes.
B) personal income taxes and corporate income taxes.
C) corporate income taxes and Social Security taxes.
D) corporate income taxes and property taxes.
E) personal income taxes and sales taxes.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: CO
AACSB: Reflective thinking
44
Copyright © 2011 Pearson Education, Inc.
34) Of the following, the federal government's largest source of revenue is the
A) sales tax.
B) property tax.
C) corporate income tax.
D) social security tax.
E) transfers from state and local governments.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: TS
AACSB: Reflective thinking
35) Tax revenues are transferred from
A) state governments to the federal government.
B) local governments to state and federal governments.
C) one state government to other state governments.
D) the federal government to state and local governments.
E) the state and local governments to the federal government.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: AA
AACSB: Reflective thinking
36) Of the following, the largest source of revenue for the federal government is the
A) personal income tax.
B) transfers from state and local governments.
C) corporation income tax.
D) lottery.
E) revenue from the sale of public lands.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: MR
AACSB: Reflective thinking
45
Copyright © 2011 Pearson Education, Inc.
37) Income taxes paid by corporations are
A) the major source of revenue for the federal government.
B) the major source of revenue for state governments.
C) the major source of revenue for local governments.
D) about 12 percent of the federal government's revenue.
E) the major source of expenditure by the federal government.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: AA
AACSB: Reflective thinking
38) The national debt is the total amount the ________ government has borrowed to make
expenditures that ________ tax revenue.
A) state and local; are less than
B) federal; are less than
C) federal; exceed
D) state and local; exceed
E) federal; are equal to
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
39) The national debt is the total amount the ________ government has ________ to make
expenditures that exceed tax revenue.
A) state and local; borrowed
B) federal; taxed U.S. citizens
C) state and local; taxed U.S. citizens
D) federal; borrowed
E) federal; loaned
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
46
Copyright © 2011 Pearson Education, Inc.
40) The total amount the federal government has borrowed to make expenditures that exceed tax
revenue is called
A) personal income taxes.
B) federal expenditures.
C) total government spending.
D) the net government revenue.
E) the national debt.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
41) If there is a national debt, we can conclude that the federal government has
A) borrowed in the past.
B) purchased more goods and services than were needed.
C) spent money foolishly.
D) loaned funds to U.S. taxpayers in the past.
E) loaned funds to other nations in the past.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: TS
AACSB: Reflective thinking
42) The largest expenditure by state and local governments is for
A) public welfare.
B) highways.
C) education.
D) fire and ambulance services.
E) transfers to the federal government.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: SA
AACSB: Reflective thinking
47
Copyright © 2011 Pearson Education, Inc.
43) State and local governments finance expenditures mainly from
A) tax revenue.
B) funds provided by the federal government.
C) government bonds issued at the state level.
D) private bank loans.
E) lottery funds.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: NAU
AACSB: Reflective thinking
44) Of the following, the largest source of tax revenue collected by state and local governments
comes from
A) personal income taxes.
B) corporate income taxes.
C) property taxes.
D) sales taxes.
E) lottery revenues.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: SB
AACSB: Reflective thinking
45) State and local governments obtain most of their revenue from
A) excise taxes and property taxes.
B) state income taxes on individuals and corporate income taxes.
C) sales taxes and transfers from the federal government.
D) state lotteries and corporate income taxes.
E) corporate income taxes and property taxes.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: PH
AACSB: Reflective thinking
48
Copyright © 2011 Pearson Education, Inc.
46) Which of the following are sources of revenue for state and local governments?
i) property taxes
ii) sales taxes
iii) transfers from the federal government
A) i and ii.
B) ii and iii.
C) i and iii.
D) i, ii and iii.
E) i only.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: CD
AACSB: Reflective thinking
47) Property taxes are a major source of revenue for
A) state and local governments.
B) the federal governments.
C) the federal, state, and local governments.
D) firms wanting to relocate their operations.
E) consumers.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: AA
AACSB: Reflective thinking
48) The largest category of state and local government expenditures is
A) public welfare.
B) highways.
C) education.
D) interest on the national debt.
E) social security.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: SB
AACSB: Reflective thinking
49
Copyright © 2011 Pearson Education, Inc.
49) State and local governments spend about ________ of their expenditures on education.
A) 15 percent
B) 20 percent
C) 35 percent
D) 60 percent
E) 75 percent
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: MR
AACSB: Reflective thinking
50) Households and firms in the U.S. economy interact with those in the rest of the world in the
________ market and in the ________ market.
A) goods; factor
B) goods; financial
C) government; goods
D) financial; factor
E) firm; government
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
51) An example of a U.S. export is
A) a TV made in China sold to a buyer in Azerbaijan.
B) matchbooks made in Mexico sold to a buyer in New Jersey.
C) pasta made in Italy sold to buyers in Spain.
D) diamonds mined in Africa sold to buyers in South America.
E) a washing machine made in Indiana sold to a buyer in France.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: KG
AACSB: Reflective thinking
50
Copyright © 2011 Pearson Education, Inc.
52) Within the circular flow model, economists define households as
A) families with at least 2 children.
B) families living in their own houses.
C) individuals or groups living together.
D) married or engaged couples.
E) individuals or groups within the same legally defined family.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
53) A market is defined as
A) the physical place where goods (but not services) are sold.
B) the physical place where goods and services are sold.
C) any arrangement that brings buyers and sellers together.
D) a place where money is exchanged for goods.
E) another name for a store.
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
54) In the circular flow model,
A) only firms sell in markets.
B) only households buy from markets.
C) some firms only sell and some firms only buy.
D) the money used to buy goods and the goods themselves travel in the same direction.
E) both firms and households buy or sell in different markets.
Skill: Level 3: Using models
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
51
Copyright © 2011 Pearson Education, Inc.
55) ________ choose the quantities of goods and services to produce, while ________ choose
the quantities of goods and services to buy
A) Households; firms
B) Firms; households and the government
C) The government; firms
D) Firms; only households
E) Households; the government
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
56) ________ choose the quantities of factors of production to hire and ________ choose the
quantities of goods and services to produce.
A) Entrepreneurs; firms
B) Firms; firms
C) Markets; markets
D) Factor markets; goods markets
E) Firms; households
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: MyEconLab Web Site
AACSB: Reflective thinking
57) In the circular flow model, rent, wages, interest, and profit paid flow from ________ through
________ to ________.
A) households; goods markets; firms as payment for goods
B) firms; factor markets; households
C) firms; goods markets; households
D) households; factor markets; firms
E) firms; goods market; firms
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: MyEconLab Web Site
AACSB: Reflective thinking
52
Copyright © 2011 Pearson Education, Inc.
58) A circular flow model shows the interrelationship between the ________ market and the
________ markets.
A) household; goods
B) household; factor
C) business; household
D) expenditure; income
E) goods; factor
Skill: Level 3: Using models
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
59) In the circular flow model, the expenditures on goods and services flow in the
A) same direction as goods and services in all cases.
B) same direction as goods and services only if they both flow through the goods market.
C) same direction as goods and services only if they both flow through the factor market.
D) opposite direction as goods and services.
E) same direction as factor markets.
Skill: Level 3: Using models
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
60) Households receive transfers from ________ and firms receive transfers from ________.
A) government; government
B) firms; households
C) government; government and households
D) firms and government; government
E) government; no one
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: MyEconLab Web Site
AACSB: Reflective thinking
53
Copyright © 2011 Pearson Education, Inc.
61) Of the following, the largest source of revenue for the federal government is
A) personal income taxes.
B) sales taxes.
C) corporate income taxes.
D) property taxes.
E) lottery revenue.
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
62) ________ are the largest components of state and local government revenue.
A) Transfers from federal government and corporate income taxes
B) Transfers from federal government and sales taxes
C) Individual income taxes and corporate income taxes
D) Individual income taxes and sales taxes
E) Corporate income taxes and lottery income
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: MyEconLab Web Site
AACSB: Reflective thinking
63) U.S. exports of goods and services flow to households and firms in ________ and U.S.
financial inflows of capital flow to households and firms in ________.
A) the United States; the United States
B) the United States; the rest of the world
C) the rest of the world; the United States
D) the rest of the world; the rest of the world
E) the United States; the rest of the world and the United States
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: STUDY GUIDE
AACSB: Reflective thinking
54
Copyright © 2011 Pearson Education, Inc.
2.4 Integrative Questions
1) If a product becomes more popular and consumers want more produced, which of the
following best describes what happens to move more factors of production into that industry?
A) An agency of the Federal government directs the movement of factors.
B) The chief executive officers or presidents of corporations require that factors leave one
industry and move to the other industry.
C) Factor owners voluntarily move their factors because they want to satisfy the interests of
consumers.
D) Wages, rent, interest, and profit increase in that industry, thereby giving factors the incentive
to move to that industry.
E) Consumers increase their demand for the products and, as a result, the taxes the producers
must pay decrease enabling the producers to hire more factors of production.
Skill: Level 3: Using models
Section: Integrative
Author: TPS
AACSB: Analytical reasoning
2) What determines the income flows that households receive?
A) an agency of the Federal government
B) what they choose to produce, how much is sold, and the price received when sold
C) their ownership of factors of production, how much they sell in the factor markets, and the
prices received when sold
D) financial institutions such as banks
E) what they choose to consume
Skill: Level 3: Using models
Section: Integrative
Author: TPS
AACSB: Reflective thinking
3) What determines the revenue flows received by businesses?
A) an agency of the Federal government
B) what they choose to produce, how much is sold, and the price received when sold
C) their ownership of factors of production, how much they sell in the factor markets, and the
prices received when sold
D) financial institutions such as banks
E) what they pay the factors of production they employ.
Skill: Level 3: Using models
Section: Integrative
Author: TPS
AACSB: Reflective thinking
55
Copyright © 2011 Pearson Education, Inc.
2.5 Chapter Figures
The figure above shows the circular flow model.
1) In the figure above, which of the following represents a real flow of a factor of production?
A) Labor
B) Wages
C) Goods bought
D) Services sold
E) Firms' expenditures on factors of production
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
56
Copyright © 2011 Pearson Education, Inc.
2) In the figure above, which of the following represents a money flow?
A) Goods purchased
B) Interest
C) Capital
D) Services sold
E) Goods supplied
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
3) In the figure above, which of the following represents a real flow?
A) Expenditures on real estate services
B) Profit
C) Capital
D) Wages
E) Both B and D
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
4) In the figure above, which of the following transactions take place in the factor markets?
i. Michael, a student, orders a computer from Dell online.
ii. Peter gets a job at a Wal-Mart store.
iii. Apple Computer opens a new store in Georgia
A) ii and iii
B) Only i
C) Only ii
D) Only iii
E) i and ii
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
57
Copyright © 2011 Pearson Education, Inc.
5) Margo orders a MacBook Pro computer from The Apple Store online to use it in her graphic
design business. How will this be reflected in the figure above?
A) As a flow of a factor of production
B) As a flow of goods and services bought
C) As expenditures on goods and services
D) As goods and services supplied
E) It won't be shown in the figure because this transaction takes place neither in goods markets
nor in factor markets.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
58
Copyright © 2011 Pearson Education, Inc.
The figure above shows governments in the circular flow.
6) In the figure above, households
A) receive transfers directly from governments.
B) buy goods and services from governments in goods markets.
C) receive transfers from governments through factor markets.
D) sell factors of production to governments.
E) pay taxes to governments through factor markets.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
59
Copyright © 2011 Pearson Education, Inc.
7) In the figure above, firms
A) pay taxes directly to governments.
B) sell goods and services to governments in goods markets.
C) receive transfers from governments through factor markets.
D) own factors of production.
E) do all of the above.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
8) In the figure above, governments
A) collect taxes.
B) coordinate economic activities of households and firms.
C) hire factors of production.
D) own factors of production.
E) sell goods and services to household.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
9) In the figure above, which of the following is true?
i. Governments coordinate economic activities of households and firms.
ii. Governments buy goods and services in goods markets.
iii. Households pay taxes directly to firms.
A) Only ii
B) Only i
C) Only iii
D) i and ii
E) ii and iii
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
60
Copyright © 2011 Pearson Education, Inc.
10) Social Security tax is deducted from your paycheck. In the figure above this will be shown
as
A) taxes flowing from households to governments.
B) taxes flowing from firms to governments.
C) taxes flowing from households to firms.
D) wages flowing from firms to households.
E) wages flowing from firms to governments.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: CO
AACSB: Reflective thinking
2.6 Essay: What, How, and For Whom?
1) It is conventional to divide the nation's total production into four categories. Name and
explain the four categories. In the United States, which category accounts for the largest share
and the smallest share of the nation's total production?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MR
AACSB: Communication
2) Explain the difference between consumption and capital goods.
Skill: Level 3: Using models
Section: Checkpoint 2.1
Author: DMC
AACSB: Communication
61
Copyright © 2011 Pearson Education, Inc.
3) Identify the four factors of production, and tell what type of income is earned by each factor.
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: NAU
AACSB: Reflective thinking
4) What are the payments each factor of production receives?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
5) What is meant by the term "human capital"?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
6) What effect, if any, will a good college education have on your human capital? Explain your
answer.
Skill: Level 3: Using models
Section: Checkpoint 2.1
Author: WM
AACSB: Reflective thinking
62
Copyright © 2011 Pearson Education, Inc.
7) Explain the differences between "human capital," "financial capital," and "capital."
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TSP
AACSB: Reflective thinking
8) What is the difference between "capital" and "financial capital"? Which is a factor of
production?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: AA
AACSB: Reflective thinking
9) What is the difference between the functional and the personal distribution of income?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: TPS
AACSB: Reflective thinking
10) In the United States, which factor of production earns the largest share of the nation's total
income?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MR
AACSB: Reflective thinking
63
Copyright © 2011 Pearson Education, Inc.
11) In the United States, how does the income received by the richest 20 percent of individuals
compare with the income received by the other 80 percent?
Skill: Level 1: Definition
Section: Checkpoint 2.1
Author: MR
AACSB: Reflective thinking
2.7 Essay: The Global Economy
1) Compare and contrast the world population with that of the United States. Is the United States
becoming a larger or a smaller part of the world's population?
Skill: Level 2: Using definitions
Section: Checkpoint 2.3
Author: AA
AACSB: Reflective thinking
2) How many and what fraction of the world's people live in advanced economies? In emerging
market and developing economies?
Skill: Level 1: Definition
Section: Checkpoint 2.3
Author: WM
AACSB: Reflective thinking
64
Copyright © 2011 Pearson Education, Inc.
3) The International Monetary Fund divides nations into three groups. What are the three groups
and what are the characteristics of each group?
Skill: Level 3: Using models
Section: Checkpoint 2.3
Author: MR
AACSB: Communication
4) Discuss the distribution of income around the world. Which countries have the highest
average incomes? Which countries have the lowest average incomes? How has the distribution
of income changed in recent years?
Skill: Level 3: Using models
Section: Checkpoint 2.3
Author: MR
AACSB: Communication
65
Copyright © 2011 Pearson Education, Inc.
5) Discuss the differences between developing and emerging market economies.
Skill: Level 5: Critical thinking
Section: Checkpoint 2.3
Author: NAU
AACSB: Communication
2.8 Essay: The Circular Flows
1) What is a market? Must a market have a single physical location?
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: AA
AACSB: Communication
2) Explain the structure of the circular flow model.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: TPS
AACSB: Communication
66
Copyright © 2011 Pearson Education, Inc.
3) How are the roles of the household different in the goods market and in the factor markets?
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: CT
AACSB: Communication
4) Describe the circular flow of the economy by discussing the two markets where households
and firms meet.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: WM
AACSB: Communication
5) Explain how public goods provided by the federal government differ from public goods
provided by the state and local governments.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: NAU
AACSB: Communication
67
Copyright © 2011 Pearson Education, Inc.
6) Describe the government's flows in the circular flow model of the economy.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: CT
AACSB: Communication
68
Copyright © 2011 Pearson Education, Inc.
7) Label the flows in the simplified circular flow diagram that ignores the government.
69
Copyright © 2011 Pearson Education, Inc.
Skill: Level 2: Using definitions
Section: Checkpoint 2.2
Author: MR
AACSB: Reflective thinking
70
Copyright © 2011 Pearson Education, Inc.
8) Draw a circular flow diagram with households and firms and without government. Label the
markets and the flows in the circular flow diagram.
Skill: Level 3: Using models
Section: Checkpoint 2.2
Author: MR
AACSB: Reflective thinking
9) Explain how the largest sources of state tax revenues differs from the largest sources of
federal tax receipts.
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: NAU
AACSB: Reflective thinking
71
Copyright © 2011 Pearson Education, Inc.
10) What are the two largest sources of tax revenues for the U.S. federal government?
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: AA
AACSB: Reflective thinking
11) What is the largest source of tax revenue for the U.S. federal government and what is the
largest expenditure item of the U.S. federal government?
Skill: Level 1: Definition
Section: Checkpoint 2.2
Author: MR
AACSB: Reflective thinking
